New Online Grocer Takes Natural Path
By George Anderson
A new online grocery service in Colorado with a focus on organic and natural foods is hoping that emphasis will help it establish a sustainable niche in a market that includes King Soopers’ HomeShop service.
Aspen Grove Market cofounder Brian Chrisman said his company’s model was created by learning from the mistakes of others, such as the long-departed Webvan.
“I saw other online grocers, but they didn’t have success back then,” he told the Rocky Mountain News. “I said, ‘Times are different now,’ and I looked at a lot of ways things could be done differently.”
Aspen Grove Market will operate out of a 6,000-square-foot warehouse in Boulder and serve an area of 80,000 households. The company will charge $5.95 for standard orders delivered during a pre-arranged two-hour window with higher fees for quicker turnaround.
About 60 percent of the more than 4,000 items Aspen will stock are natural or organic items. The company plans to source locally whenever possible.
Aspen Grove’s other cofounder, Mike Ruth, said the company is prepared to compete in a market that includes King Soopers’ HomeShop.
“The research we’ve done has shown that, if you provide produce that’s as good or better, you actually will end up selling a higher percentage than those stores do,” he said.
Moderator’s Comment: Has Aspen Grove Market found a sustainable competitive niche in the online grocery business? What will be the keys for the new venture
to succeed? –
George Anderson – Moderator
You are a business person. You have a choice: pick and pack $1 items or pick and pack $100 items. Your cost per item is the same, regardless of price. Which business would you choose? Here’s another quiz question: You can deliver a $75 order with a 30% gross margin or a $75 order with a 50% gross margin. Your cost of delivery is higher for the 30% gross margin business. Which business do you choose? Even though some customers might want to order their groceries online and have them delivered, no one has yet explained where the profits can come from. The likely delivery fees and gross margins are just too low. To be profitable, online shopping and home delivery require higher price points and higher margin percentages. That’s why the business model can work for clothing, books, and high end electronics.
I knew this concept would be up and running just as I moved out of Denver – I had been on Aspen Grove’s notification list for several months!
One thing they might want to consider is some kind of “out of season” notice or “give me best available quality.” If consumers expect that big yellow squash, giant sweet strawberries, and perfectly-ripe avocados will be available every day of the year, and they are paying a premium on top of that, Aspen Grove might be letting themselves in for massive complaints and credits. I was an early customer for failed Pea Pod in Dallas/Fort Worth years ago. Spotty quality, gruff (and sometimes smelly – yikes) drivers/delivery people, missed delivery times, and poor packing happened often enough to get be back in the car.
Mark makes a good point. I haven’t seen anyone yet brag about all the profit they are making in online groceries. Personally, if I have a choice to buy online or have a fun experience at Whole Foods or Trader Joe’s — well, do the math.
For a good example of an extremely well run online grocery, with excellent service, quality and the same prices/promotions as the store to which they are affiliated, have a look at www.ocado.com. I am one of their extremely loyal customers. They have been growing by leaps and bounds, deservedly so, since they launched just three (I think) years ago. And although Tesco keeps grabbing headlines with press releases about how much money their home delivery service makes, most of it is in non-food products and is a considerably less reliable service. It CAN be done, guys.
In this case, Mark is right, David is right and so is Bernice. How is that possible? Well, for most that have entered into the game, they have found the same equation that Mark explains. The consumers that are targeted here, however, are those likely mentioned by David, (Trader Joe’s and Whole Foods). I would think that the demographic would both fit the experience preference and also the online preference as an alternative. Bernice is right, as it likely can be done. However, as the current numbers show, it will hinge on execution. In this area, where cost and margin are critical, execution has to be perfect in order to remain profitable. That’s why so many have bowed out.
If online grocery will ever work in any measurable way, it will be in this area. Personally, I just think the convenience isn’t there and the cost doesn’t equate with a benefit.
This is a model that does not work for business people. It works for some consumers such as wealthy shut in seniors…more than normally busy wealthy working people…but it works better in theory for them than in practice because mistakes happen…bananas are too yellow for some too green for others, etc. Focus groups will forever suck people into this “black hole” that those who watch what consumers do (us Paco Underhill devotees) instead of listening to what they say will never again get sucked into.
Is the key factor in any home delivery system the ordering process (in this case the web)?
In my opinion, the winner in this arena will home deliver a full line of high quality items at an appointed time for regular customers. The ordering method will use the web, fax, or telephone — whatever works for the customer. The quality and variety of the products, the reasonableness of the necessary up charge, and the dependability/convenience of the delivery/appointment arrangements will be the key factors of success.
A review of the Specialty Food Magazine, May 2005, article entitled “The return of on line grocers” clearly states the successes to date and the inherent limitations of the various business models.